FMCG companies clock slowest Q2 sales in a decade

October 27, 2016 — INDOLINK Consulting (es)

Source: LiveMint.com, Oct 27, 2016

MUMBAI/ NEW DELHI: Volume sales of top consumer products makers such as Hindustan Unilever and Dabur hardly picked up in the quarter ended September, making it one of the worst in more than a decade for the industry even as consumers across rural and urban markets remained close-fisted.

Hindustan Unilever, the largest FMCG company in the country, posted just 1.6% year-on-year increase in its net sales for the second quarter while Dabur posted standalone revenue growth of just 2.3% and ITC’s FMCG business grew 13%, prompting everyone to concede that the overall market in the country remains “challenging”, but they said market conditions could improve in the next few months.

Coca-Cola India, too, reported 4% decline in volumes for the July-September quarter, impacted by slowing discretionary spending, and consumers moving away to healthier drinks.“July was when we actually saw the consumer demand and volumes dip because of the confluence of drought plus floods in some places,” Sanjiv Mehta, MD at Hindustan Unilever, said on Wednesday.

The maker of Rin detergent and Lux soap saw its volume growth decline 1% in the second quarter, its worst performance since March 2009 when its volume declined 4%.

It posted 1.6% rise in net sales at Rs 8,480 crore, the lowest growth in last 30 quarters, which it blamed to price increases in one of its largest businesses — personal care.

HUL’s personal care business that accounts for half its overall sales declined 0.3% to Rs 4,028 crore in the September quarter while home care segment grew 3% to Rs 2,777 crore.

Hindustan Unilever’s dominating presence in a range of daily consumption items such as soaps, shampoos and detergents makes its performance more or less reflect the overall consumer sentiment in the country.

The Indian unit of the Anglo-Dutch consumer giant Unilever posted a 12% rise in net profit to Rs 1,096 crore, helped by other income and margin expansion.The company, however, said it has seen some uptick in September and an improvement in October.

A key feature has been improvement in terms of margins, while remaining competitive in terms of spends, company chairman Harish Manwani said. “Even in a quarter like this where we have not seen the volume growth, we have managed to deliver 60 bps improvement in EBIDTA margins.”

ITC’s FMCG revenue rose 13.3% to Rs 2,672 crore in the quarter ended September — its strongest growth after four quarteof single-digit growth — led by new launches and favourable base in noodles.

It said segment results also included gestation costs related to new categories such as juices, chocolates, dairy and the health and hygiene segments. It said operating losses from the segment were down to Rs 3.26 crore from Rs 11.1crore in the year-ago period. ITC’s cigarette business saw gross sales growth of 7.1% year on year. Its revenue from cigarettes rose by 7.1% at Rs 8,528.47 crore while the gross profit rose by 8.3% at Rs 3,216.88 crore.

The growth in the household categories in rural India has been consistently tapering off, which isn’t good news given that these areas were seen as picking up the slack with city markets tapering three years ago.

Margin expansion could now be much lower as the base had benefits such as lower crude prices. Over the last three years, several companies have aggressively discounted and slashed prices in an effort to win shoppers, especially the ones that have slowed down spends in discretionary daily items.

Prices of key raw materials such as wheat, sugar and palm oil, though low, have been gradually rising, which could impact profitability of companies if promotions continue.

The maker of Real juice and Vatika shampoo said it will up ad spends and sacrifice margins in an effort to improve market share.

“Consumption remained constrained across sectors, and in international markets like West Asia and Africa, political volatility took a toll. We will push promotions to drive volumes,” Dabur chief executive Sunil Duggal said.

Companies are, however, optimistic that domestic consumer demand would pick up on the back of good monsoons and a slew of government initiatives.